OFFICIAL PAYMENTS HOLDINGS, INC. - FORM 8-K - EX-99.1 - PRESS RELEASE - August 7, 2012

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8-K - 8-K-5-07-12--EARNINGS ANNOUNCEMENT - OFFICIAL PAYMENTS HOLDINGS, INC.form8k.htm
Official Payments Holdings, Inc.
3550 Engineering Drive, Suite 400
Norcross, GA  30092


CONTACT:
Jeff Hodges, Chief Financial Officer
Jeff.Hodges@OfficialPayments.com
(770) 325-3102

Official Payments Reports Fiscal 2012 Third Quarter Results
Norcross, GA, August 7, 2012 - Official Payments Holdings, Inc. (Nasdaq: OPAY), a leading provider of electronic payment solutions for the biller direct market, today released results for the quarter ended June 30, 2012.
Results of Operations
Third Quarter Fiscal 2012 Results
For the quarter ended June 30, 2012, Official Payments reported revenues from Continuing Operations of $39.2 million, a 1.9% increase over the same quarter last year.  Our loss from Continuing Operations was $0.9 million, or $0.05 per fully diluted share, as compared with a loss of $0.08 per fully diluted share from the same quarter last year.  Continuing Operations include Payment Solutions, and our VSA operations, which we are winding down.  On a standalone basis, our Payment Solutions business reported quarterly revenues of $38.9 million, or a 2.1% increase over the same quarter last year.
Our general, administrative, selling and marketing expenses, which support our Continuing Operations, were $9.2 million, an increase of $2.0 million, or 28%, from the same quarter last year.  Approximately $1.5 million of this increase was due to management incentive plan accruals in the third quarter 2012 versus reversals of the incentive plan accrual in the same period in 2011.
Management's Comments
Alex P. Hart, President and Chief Executive Officer of Official Payments Holdings, Inc. stated, "We've produced three quarters in a row of positive improvement over the prior year and I'm pleased with how we're positioned. I believe our strategy is sound and that we're executing well."
Definition and Reconciliation
We use the following non-GAAP financial measures in this press release:  Adjusted EBITDA from Continuing Operations and Payment Solutions net revenue.  Official Payments' management believes these measures are useful for evaluating our performance against the performance of peer companies within the electronic payments industry, and that these measures provide investors with additional transparency with respect to financial measures used by management in its financial and operational decision-making.  Our management believes that Payment Solutions net revenue provides additional information about our
business, as we wind-down our VSA operations.  We also use Adjusted EBITDA from Continuing Operations, together with other criteria, in our executive compensation program.  Non-GAAP financial measures should not be considered a substitute for the reported results prepared in accordance with generally accepted accounting principles in the United States, or US GAAP.  Our definitions used to calculate non-GAAP financial measures may differ from those used by other companies.
Official Payments defines Adjusted EBITDA from Continuing Operations as net loss from our Continuing Operations before interest expense net of interest income, income taxes, depreciation and amortization, restructuring charges and stock-based compensation in both equity and cash.
The following table shows a reconciliation of net loss from Continuing Operations to Adjusted EBITDA from Continuing Operations for the three and nine months ended June 30, 2012 and 2011:
 
  
Adjusted EBITDA
  
 
  
Three months ended June 30,
  
(in thousands)
  
2012
    
2011
    
Change
  
Net Loss from Continuing Operations
  
$
(852
)
  
$
(1,356
)
  
$
504
  
Adjustments:
                        
Depreciation/Amortization
    
1,851
      
1,856
      
(5
)
Stock-based compensation
    
371
      
324
      
47
  
Restructuring charge
    
2
      
-
      
2
  
Taxes
    
5
      
46
      
(41
)
Less:
                        
Interest (expense) income, net
    
(1
)
    
19
      
(20
)
Adjusted EBITDA from Continuing Operations
  
$
1,378
    
$
851
    
$
527
  

 
  
Adjusted EBITDA
  
 
  
Nine months ended June 30,
  
(in thousands)
  
2012
    
2011
    
Change
  
Net Loss from Continuing Operations
  
$
(3,894
)
  
$
(3,825
)
  
$
(69
)
Adjustments:
                        
Depreciation/Amortization
    
5,620
      
5,420
      
200
  
Stock-based compensation
    
1,352
      
(522
)
    
1,874
  
Restructuring charge
    
1,493
      
-
      
1,493
  
Taxes
    
5
      
(139
)
    
144
  
Less:
                        
Interest income, net
    
-
      
76
      
(76
)
Adjusted EBITDA from Continuing Operations
  
$
4,576
    
$
858
    
$
3,718
  
Official Payments defines Payment Solutions net revenue as Payment Solutions gross revenue less discount fees.  Discount fees include interchange fees and other processing-related dues, assessments and fees.  Payment Solutions gross revenue is defined as revenue from continuing operations less revenue from VSA operations.  The following is a reconciliation of Payment Solutions net revenue to revenue from continuing operations for the three and nine months ended June 30, 2012 and 2011:

 
  
Net Revenue
  
 
  
Three months ended June 30,
  
(in thousands, except percentages)
  
2012
    
2011
    
Change ($)
    
Change (%)
  
Revenue from continuing operations
  
$
39,163
    
$
38,443
    
$
720
      
1.9
%
Less:
                                
VSA revenue
    
257
      
353
      
(96
)
    
(27.2
)%
Payment Solutions gross revenue
    
38,906
      
38,090
      
816
      
2.1
%
Less:
                                
Discount fees
    
27,134
      
29,170
      
(2,036
)
    
(7.0
)%
Payment Solutions net revenue
  
$
11,772
    
$
8,920
    
$
2,852
      
32.0
%


 
  
Net Revenue
  
 
  
Nine months ended June 30,
  
(in thousands, except percentages)
  
2012
    
2011
    
Change ($)
    
Change (%)
  
Revenue from continuing operations
  
$
106,820
    
$
101,679
    
$
5,141
      
5.1
%
Less:
                                
VSA revenue
    
1,142
      
1,208
      
(66
)
    
(5.5
)%
Payment Solutions gross revenue
    
105,678
      
100,471
      
5,207
      
5.2
%
Less:
                                
Discount fees
    
70,415
      
74,462
      
(4,047
)
    
(5.4
)%
Payment Solutions net revenue
  
$
35,263
    
$
26,009
    
$
9,254
      
35.6
%

Liquidity
As of June 30, 2012, we had $40.8 million in cash and cash equivalents. Our $40.8 million in cash, cash equivalents and marketable securities includes $6.9 million of accrued discount fees and funds of $1.1 million we have not yet paid to clients due to the timing of bank transactions.  These items reduce our cash available for our use.  Therefore, the cash and cash equivalents available to us at June 30, 2012 are $32.8 million.  Using the same calculation, we had $32.7 million available to us at September 30, 2011.
Conference Call
Official Payments will host a conference call Tuesday, August 7 at 5:00 p.m. Eastern Time to discuss these results.  To access the conference call, please dial (877) 917-3616.  The conference call will also be broadcast live via the Internet at www.OPAY.OfficialPayments.com.
A replay will be available at 8:00 p.m. Eastern Time on Tuesday, August 7, 2012 at www.OPAY.OfficialPayments.com or by calling (800) 925-4415.  The replay will be available from 10:00 p.m. Eastern Time, Tuesday August 7, 2012 until 11:59 p.m. Eastern Time on August 28, 2012.
About Official Payments Holdings, Inc.
Official Payments Holdings, Inc. (Nasdaq: OPAY) is a leading provider of electronic payment solutions in the biller direct market.  Headquartered in Norcross, Georgia, the company provides enhanced electronic payment services that include multiple payment choices, payment channels, and bill payment products and services to more than 3,500 clients in all 50 states and the District of Columbia.  Official Payments serves clients in multiple markets including federal, state, and local governments, educational institutions, and utilities.  Consumers may pay federal taxes, state and local taxes, property taxes, and other bills such as utilities and college tuition with credit cards, debit cards, electronic checks and
alternative payment methods via online, telephone, point of sale and other channels by visiting www.OfficialPayments.com.  Corporate information is available at www.OPAY.OfficialPayments.com.
Forward looking statements
Statements made in this press release that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements relate to future events or Official Payments' future financial and/or operating performance and generally can be identified as such because the context of the statement includes words such as "may," "will," "intends," "plans," "believes," "anticipates," "expects," "estimates," "shows," "predicts," "potential," "continue," or "opportunity," the negative of these words or words of similar import.  Official Payments undertakes no obligation to update any such forward-looking statements.  Each of these statements is made as of the date hereof based only on current information and expectations that are inherently subject to change and involve a number of risks and uncertainties.  Actual events or results may differ materially from those projected in any of such statements due to various factors, including, but not limited to: general economic conditions, which affect Official Payments' financial results in all our markets, which we refer to as "vertical markets", particularly the federal vertical market, the state and local tax vertical market and the property tax vertical market;  effectiveness and performance of our systems, payment processing platforms and operational infrastructure; our ability to grow Payment Solutions revenue while reducing our costs, including processor and interchange related costs; the timing, initiation, completion, renewal, extension or early termination of client or partner contracts or projects; our ability to execute on our sales and product strategy and realize revenues from our business development opportunities; the impact of regulatory requirements; and unanticipated claims as a result of project performance, including due to the failure of software providers, processors, vendors, partners, or subcontractors to satisfactorily perform and complete engagements.  For a discussion of these and other factors which may cause our actual events or results to differ from those projected, please refer to the periodic reports on Form 10-K and Form 10-Q that we file with the Securities and Exchange Commission.



Page 4 of 9
OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Balance Sheets
(in thousands)
  
June 30, 2012
    
September 30, 2011
  
 
  
(unaudited)
    
 
ASSETS:
  
   
 
Current assets:
  
   
 
Cash and cash equivalents
  
$
40,753
    
$
39,760
  
Accounts receivable, net
    
4,350
      
4,467
  
Settlements receivable, net
    
12,848
      
7,648
  
Prepaid expenses and other current assets
    
1,497
      
2,368
  
Total current assets
    
59,448
      
54,243
  
 
                
Property, equipment and software, net
    
17,617
      
18,189
  
Goodwill
    
17,551
      
17,460
  
Other intangible assets, net
    
1,491
      
4,037
  
Other assets
    
585
      
238
  
Total assets
  
$
96,692
    
$
94,167
  
 
                
LIABILITIES AND SHAREHOLDERS' EQUITY:
                
Current liabilities:
                
Accounts payable
  
$
63
    
$
1,057
  
Settlements payable
    
13,989
      
9,812
  
Accrued compensation liabilities
    
4,778
      
2,721
  
Accrued discount fees
    
6,933
      
4,900
  
Other accrued liabilities
    
2,260
      
3,703
  
Accrued restructuring charges
    
314
      
178
  
Deferred income
    
244
      
439
  
Total current liabilities
    
28,581
      
22,810
  
Other liabilities:
                
Deferred rent
    
78
      
1,556
  
Accrued restructuring charges
    
991
      
-
  
Other liabilities
    
168
      
28
  
Total other liabilities
    
1,237
      
1,584
  
Total liabilities
    
29,818
      
24,394
  
 
                
Shareholders' equity:
                
Preferred stock, no par value; authorized shares:  4,579;
no shares issued and outstanding
    
-
      
-
  
Common stock, $0.01 par value, and paid-in capital; shares authorized: 44,260;
shares issued: 20,817 and 20,817; shares outstanding: 16,642 and 16,642
    
194,740
      
193,732
  
Treasury stock-at cost, 4,175 shares
    
(31,383
)
    
(31,383
)
Accumulated deficit
    
(96,483
)
    
(92,576
)
Total shareholders' equity
    
66,874
      
69,773
  
Total liabilities and shareholders' equity
  
$
96,692
    
$
94,167
  

Page 5 of 9

OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)
 
 
  
Three months ended
June 30,
    
Nine months ended
June 30,
  
(in thousands, except per share data)
  
2012
    
2011
    
2012
    
2011
  
Revenues
  
$
39,163
    
$
38,443
    
$
106,820
    
$
101,679
  
 
                                
Costs and expenses:
                                
Direct costs
    
28,922
      
30,696
      
75,697
      
78,898
  
General and administrative
    
6,601
      
5,530
      
23,096
      
16,339
  
Selling and marketing
    
2,635
      
1,690
      
6,296
      
5,062
  
Depreciation and amortization
    
1,851
      
1,856
      
5,620
      
5,420
  
Total costs and expenses
    
40,009
      
39,772
      
110,709
      
105,719
  
Loss from continuing operations before other income and income taxes
    
(846
)
    
(1,329
)
    
(3,889
)
    
(4,040
)
 
                                
Other income:
                                
Interest (expense) income, net
    
(1
)
    
19
      
-
      
76
  
Total other income
    
(1
)
    
19
      
-
      
76
  
 
                                
Loss from continuing operations before income taxes
    
(847
)
    
(1,310
)
    
(3,889
)
    
(3,964
)
Income tax provision (benefit)
    
5
      
46
      
5
      
(139
)
 
                                
Loss from continuing operations
    
(852
)
    
(1,356
)
    
(3,894
)
    
(3,825
)
(Loss) gain from discontinued operations, net
    
(1
)
    
(76
)
    
(13
)
    
226
  
 
                                
Net loss
  
$
(853
)
  
$
(1,432
)
  
$
(3,907
)
  
$
(3,599
)
 
                                
(Loss) gain per share-Basic and diluted:
                                
From continuing operations
  
$
(0.05
)
  
$
(0.08
)
  
$
(0.23
)
  
$
(0.22
)
From discontinued operations
    
-
      
-
      
-
      
0.01
  
Loss per share-Basic and diluted
  
$
(0.05
)
  
$
(0.08
)
  
$
(0.23
)
  
$
(0.21
)
 
                                
Weighted average common shares used in computing:
                                
Basic and diluted loss per share
    
16,642
      
16,951
      
16,642
      
17,252
  
Page 6 of 9

OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statements of Cash Flows
(unaudited)
 
  
Nine months ended
June 30,
  
(in thousands)
  
2012
    
2011
  
CASH FLOWS FROM OPERATING ACTIVITIES:
  
   
 
Net  loss
  
$
(3,907
)
  
$
(3,599
)
Less: (Loss) gain from discontinued operations, net
    
(13
)
    
226
  
Loss from continuing operations, net
    
(3,894
)
    
(3,825
)
Non-cash items included in net loss:
                
Restructuring costs
    
803
      
-
  
Depreciation and amortization
    
5,620
      
5,420
  
Provision for doubtful accounts
    
26
      
457
  
Deferred rent
    
(3
)
    
415
  
Share-based compensation
    
1,008
      
(523
)
Capitalized software impairment loss
    
-
      
268
  
Net effect of changes in assets and liabilities:
                
Accounts receivable, net
    
91
      
710
  
Settlement processing assets and obligations, net
    
(1,023
)
    
1,991
  
Prepaid expenses and other assets
    
524
      
(273
)
Accounts payable and accrued liabilities
    
1,526
      
(3,226
)
Income taxes receivable
    
-
      
(62
)
Other long term liabilities
    
161
      
-
  
Deferred income
    
(195
)
    
(150
)
Cash provided by operating activities from continuing operations
    
4,644
      
1,202
  
Cash used in operating activities from discontinued operations
    
(13
)
    
(138
)
Cash provided by operating activities
    
4,631
      
1,064
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Purchases of available-for-sale securities
    
-
      
(13,248
)
Maturities of available-for-sale securities
    
-
      
14,576
  
Maturities of restricted investments
    
-
      
983
  
Capitalized internally developed software
    
(1,911
)
    
(1,063
)
Purchase of equipment and software
    
(1,610
)
    
(2,111
)
ChoicePay acquisition
    
(91
)
    
(56
)
Cash used in investing activities from continuing operations
    
(3,612
)
    
(919
)
Cash provided by investing activities from discontinued operations
    
-
      
364
  
Cash used in investing activities
    
(3,612
)
    
(555
)
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Net proceeds from issuance of common stock
    
-
      
482
  
Purchase of company stock
    
-
      
(10,363
)
Capital lease obligations and other financing arrangements
    
(26
)
    
(25
)
Cash used in financing activities
    
(26
)
    
(9,906
)
Net increase (decrease) in cash and cash equivalents
    
993
      
(9,397
)
Cash and cash equivalents at beginning of period
    
39,760
      
45,757
  
Cash and cash equivalents at end of period
  
$
40,753
    
$
36,360
  

Page 7 of 9

OFFICIAL PAYMENTS HOLDINGS, INC.
Consolidated Statement of Operations-Continuing Operations
(unaudited)
(in thousands)
  
Payment Solutions
    
VSA
    
Total
  
Three months ended June 30, 2012:
            
Revenues
  
$
38,906
    
$
257
    
$
39,163
  
Costs and expenses:
                        
Direct costs
    
28,776
      
146
      
28,922
  
General and administrative
    
6,584
      
17
      
6,601
  
Selling and marketing
    
2,635
      
-
      
2,635
  
Depreciation and amortization
    
1,851
      
-
      
1,851
  
Total costs and expenses
    
39,846
      
163
      
40,009
  
(Loss) income from continuing operations before other income and income taxes
    
(940
)
    
94
      
(846
)
Other income:
                        
Interest income, net
    
(1
)
    
-
      
(1
)
Total other income
    
(1
)
    
-
      
(1
)
(Loss) income from continuing operations before taxes
    
(941
)
    
94
      
(847
)
Income tax provision
    
5
      
-
      
5
  
(Loss) income from continuing operations
  
$
(946
)
  
$
94
    
$
(852
)
 
(in thousands)
  
Payment Solutions
    
VSA
    
Total
  
Three months ended June 30, 2011:
            
Revenues
  
$
38,090
    
$
353
    
$
38,443
  
Costs and expenses:
                        
Direct costs
    
30,622
      
74
      
30,696
  
General and administrative
    
5,519
      
11
      
5,530
  
Selling and marketing
    
1,690
      
-
      
1,690
  
Depreciation and amortization
    
1,856
      
-
      
1,856
  
Total costs and expenses
    
39,687
      
85
      
39,772
  
(Loss) income from continuing operations before other income and income taxes
    
(1,597
)
    
268
      
(1,329
)
Other income:
                        
Interest income, net
    
19
      
-
      
19
  
Total other income
    
19
      
-
      
19
  
(Loss) income from continuing operations before taxes
    
(1,578
)
    
268
      
(1,310
)
Income tax provision
    
46
      
-
      
46
  
(Loss) income from continuing operations
  
$
(1,624
)
  
$
268
    
$
(1,356
)
 
Page 8 of 9
(in thousands)
  
Payment Solutions
    
VSA
    
Total
  
Nine months ended June 30, 2012:
            
Revenues
  
$
105,678
    
$
1,142
    
$
106,820
  
Costs and expenses:
                        
Direct costs
    
75,099
      
598
      
75,697
  
General and administrative
    
22,906
      
190
      
23,096
  
Selling and marketing
    
6,296
      
-
      
6,296
  
Depreciation and amortization
    
5,620
      
-
      
5,620
  
Total costs and expenses
    
109,921
      
788
      
110,709
  
(Loss) income from continuing operations before other income and income taxes
    
(4,243
)
    
354
      
(3,889
)
Other income:
                        
Interest income, net
    
-
      
-
      
-
  
Total other income
    
-
      
-
      
-
  
(Loss) income from continuing operations before taxes
    
(4,243
)
    
354
      
(3,889
)
Income tax benefit
    
(5
)
    
-
      
(5
)
(Loss) income from continuing operations
  
$
(4,248
)
  
$
354
    
$
(3,894
)
 
(in thousands)
  
Payment Solutions
    
VSA
    
Total
  
Nine months ended June 30, 2011:
            
Revenues
  
$
100,471
    
$
1,208
    
$
101,679
  
Costs and expenses:
                        
Direct costs
    
78,705
      
193
      
78,898
  
General and administrative
    
16,328
      
11
      
16,339
  
Selling and marketing
    
5,062
      
-
      
5,062
  
Depreciation and amortization
    
5,420
      
-
      
5,420
  
Total costs and expenses
    
105,515
      
204
      
105,719
  
(Loss) income from continuing operations before other income and income taxes
    
(5,044
)
    
1,004
      
(4,040
)
Other income:
                        
Interest income, net
    
76
      
-
      
76
  
Total other income
    
76
      
-
      
76
  
(Loss) income from continuing operations before taxes
    
(4,968
)
    
1,004
      
(3,964
)
Income tax benefit
    
(139
)
    
-
      
(139
)
(Loss) income from continuing operations
  
$
(4,829
)
  
$
1,004
    
$
(3,825
)
 
Page 9 of 9

OFFICIAL PAYMENTS HOLDINGS, INC. Reports